U.S. Cellular Warns of 4Q Customer Losses, Sales Slump

U.S. Cellular warned investors of customer losses and lower-than-expected sales in preliminary fourth-quarter and full-year results published today.

The carrier, a subsidiary of TDS, lost 10,000 postpaid customers and 11,000 prepaid customers in the fourth quarter and said full-year sales would come in "just slightly below" its previous guidance of $3.925 billion. U.S. Cellular said its full-year operating income is also expected to come in below its earlier forecast, dropping about 5 percent below its guidance of $200 million to $250 million.

U.S. Cellular blamed the results on the cost of its Belief Project, which offers customers replacement phones, faster upgrades, cheaper plans and discounts for paying online. The program also included a week long sale at the end of November that offered customers a $150 credit for activating a new smartphone. The company said nearly 1.2 million new and existing customer adopted its Belief Project plans after the program launched in October 2010, but the program failed to stop the company from losing customers.

Stifel Nicolaus analyst Chris King said U.S. Cellular's customer losses pointed to "the continued challenges that the company faces as a regional wireless provider... challenges that may become more acute following this week's launch of the iPhone by Verizon Wireless – U.S. Cellular's most direct competitor."

King had expected U.S. Cellular to add about 31,000 new postpaid subscribers and lose about 29,000 prepaid subscribers in the fourth quarter, for a combined addition of 2,000 new customers.

The grim preliminary earnings did have a few bright spots. Postpaid churn and ARPU improved both sequentially and year-over-year, and smartphone sales exceeded expectations. During the fourth quarter, smartphones comprised 39 percent of all handset sales, with Android leading the increase. Smartphone subsidies ate into profits, but U.S. Cellular said the higher ARPU associated with the devices would be beneficial in the long term. U.S. Cellular will release its complete earnings results on Feb. 24.

U.S. Cellular's stock fell 1.6 percent by 9:45 a.m. Central in trading on the New York Stock Exchange.